Financial Planning and Forecasting - Solutions3

# Financial Planning and Forecasting - Solutions3 - Net Fixed...

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Old Exam Questions - Financial Planning and Forecasting - Solutions Page 21 of 57 Pages Net Fixed Assets \$68,000 Long-Term Debt \$53,000 Common Stock \$6,400 Retained Earnings \$10,000 Total Assets \$76,800 Total Liabilities & Equity \$75,400 Additional funding needs = \$76,800 - \$75,400 = \$1,400 13. Your company had the following balance sheet for 2004: Assets 2004 Liabilities & Equity 2004 Current Assets \$1,200,000 Accounts Payable \$200,000 Fixed Assets \$800,000 Accrued Wages \$200,000 Notes Payable \$200,000 Long-Term Debt \$600,000 Total Common Equity \$800,000 Total Assets \$2,000,000 Total Liabilities & Equity \$2,000,000 Assume that in 2004, the company reported sales of \$10 million, net income of \$200,000, and dividends of \$120,000. Now assume that (1) the company anticipates its sales will increase 20 percent in 2005, (2) its dividend payout will remain at 60 percent, and (3) the company is at full capacity, and that all of its assets and spontaneous liabilities will increase proportionately with an increase in sales. Finally, assume the company uses the AFN formula and all additional funds needed (AFN) will come from issuing new long-term debt. Given its forecast, and ignoring financing feedback effects, determine how much long-term debt the company will need to issue in 2005. * A. \$224,000 B. \$200,000 C. \$216,000 D. \$192,000 E. \$208,000 A*/S 0 = \$2,000,000 / \$10,000,000 = 20% L*/S 0 = (\$200,000 + \$200,000) / \$10,000,000 = 4% PM = \$200,000 / \$10,000,000 = 2% (1 - DPR) = 1 - .60 = 40% S 1 = (\$10,000,000) (1.20) = \$12,000,000 S = \$12,000,000 - \$10,000,000 = \$2,000,000 AFN = (.2)(\$2,000,000) - (.04)(\$2,000,000) - (\$12,000,000)(.02)(.4)

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Old Exam Questions - Financial Planning and Forecasting - Solutions Page 22 of 57 Pages AFN = \$400,000 - \$80,000 - \$96,000 = \$224,000 14. You are given below the 2004 year-end financial statements for your firm (in thousands) and have been asked to project the firm’s funding needs for 2005. You may make the following assumptions when making your forecast: 1. Sales are expected to increase by 30 percent over the coming year -- they will increase to \$19,500,000. 2. Operating costs are expected to decrease to 77 percent of sales. 3. The interest rate on long-term debt will remain at 10 percent for 2005, but the interest rate on short-term debt, such as notes payable, will go up to 12 percent. 4. Taxes are expected to increase to 40 percent in 2005. 5. The firm expects to increase its dividend per share to \$1.80 in 2005. 6. All current assets will increase proportionately with sales. 7. At the end of 2004, fixed assets (property plant and equipment) are being operated at only 80 percent of capacity. 8.
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## This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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Financial Planning and Forecasting - Solutions3 - Net Fixed...

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